Reverberations over Reverb’s settlement after deceptive reviews

The US Federal Trade Commission has settled claims against a PR agency over reviews of its clients’ products posted on iTunes by the agency’s employees. What would have been the penalties if this had happened in the UK? Rupesh Chandrani, Senior Legal Counsel at British Gas, reviews genuinely.

Topic: Online advertising

Who: Reverb Communications and the Federal Trade Commission

Where: United States Of America

When: August 2010

Law stated as at: 1 November 2010

What happened:

California-based sales, marketing and PR firm Reverb Communications Inc. reached a settlement with the Federal Trade Commission over charges brought by the FTC alleging that Reverb employees had engaged in deceptive advertising by having its employees pose as ordinary consumers and post game ratings and reviews on Apple’s iTunes store without disclosing that they came from employees working on behalf of the application developers.

According to the FTC complaint, between November 2008 and May 2009, Reverb employees posted endorsements with four and five star ratings citing praise such as "amazing new game," "ONE of the BEST", “Really Cool Game” and "One of the best apps just got better" about their clients’ games at the iTunes store using account names that gave readers the impression the reviews were written by disinterested consumers.

Reverb and its sole owner, Tracie Snitker, did not disclose that they were hired to promote the games and that they often received a percentage of the sales. The FTC argued that these facts would have been relevant to consumers who were deciding whether or not to buy the applications in question.

Although they admitted no wrongdoing and were not fined, under the terms of the settlement, Reverb and Snitker, are obliged to remove any previous reviews that were written by Reverb employees posing as independent users/ consumers who failed to disclose their relationship with their game developer clients. Reverb and Snitker are also barred from future endorsements unless they disclose any relevant connections they have with the seller of the product or service.

Why this matters:

Although the practice of ‘astroturfing’ has been in existence for many years, until the new FTC guidelines came into effect it was relatively unpoliced on the internet.

The FTC’s action against Reverb is the first time that the FTC has applied its revised “Guides Concerning the Use of Endorsements and Testimonials in Advertising” (16 CFR Part 255) (issued in October 2009) and the FTC settlement sends a clear reminder to marketing and PR agencies that the FTC guidelines clearly apply to them and not just their clients.

What would be the position in the UK?

Whilst Snitker appears to have dismissed the issue as “frivolous”, if a similar situation arose in England agencies and developers could find themselves exposed to criminal and civil liability and possibly regulatory censure.

The most likely action would probably be enforcement by Trading Standards under the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). Schedule One to the CPRs lists 31 commercial practices which are in all circumstances considered unfair. One of these 31 unfair commercial practices is

“falsely claiming or creating the impression that the trader is not acting for purposes relating to his trade, business, craft or profession, or falsely representing oneself as a consumer”.

A finding that a fake review breached the CPRs would give rise to criminal liability.

Fraudulent misrepresentation?

Although rarely quoted in situations involving false reviews, fraudulent misrepresentation may give rise to civil liability where a false statement of fact has been made without belief in its truth either knowingly, recklessly or without caring whether it is true or false, with the intention that it should be acted on and is in fact acted on.

It would be for the complainant to prove that all the elements of fraudulent misrepresentation have occurred in order to claim damages. Fraudulent misrepresentation may be difficult to prove in practice as the representation must be an inducement to enter into a contract. It would be very difficult for a court to conclude that a statement in an online review was sufficient for a reasonable person to act on it and enter into a contract unless, for example, so many postings were made that it became reasonable for a consumer to conclude that the product or service being promoted was one that they would want to take.

CAP Code breach?

Whilst any similar practice would probably not be contrary to the current CAP Code, as any such review would not fall within the definition of "an advertisement in non-broadcast electronic media", the situation may be different when the remit of the CAP Code is extended on 1 March 2011.

If the CAP Code were to apply, if any reviews are interpreted as "directly connected with supply or transfer of goods, services or opportunities" these reviews could breach any numbers of provisions in the CAP Code, for example, that "marketing communications must not materially mislead by omitting the identity of the marketer" and "marketing communications must be prepared with a sense of responsibility to consumers and to society".

Much will depend in practice on whether the ASA chooses to interpret its extended remit more broadly or whether the ASA will refer comparable situations to the Reverb scenario to Trading Standards or the OFT for further action. In practical terms, it is difficult to foresee too many consumer complaints as it would be difficult for consumers to become aware of such activities. Competitors may be more likely to complain though without some tangible evidence any complaint may be dismissed as speculative.

Employers should look at controlling employees' use of social media

Whilst there may be little in practice that an agency or developer can do to stop overzealous individuals rating their own applications very highly, a company will be vicariously liable for their employees’ actions, if the employee has been specifically authorised by the employer to post a review.

As such, it would be good practice to insert a social media use provision into employment contracts or email and internet use policies which states that employees should not act in a way/make postings that are likely to reflect negatively or promote a negative image of their employer. The policy should also set out how any breaches will be dealt with, for example, as a disciplinary offence.

Until the ASA and the courts are asked to consider a similar case in the UK under any of the above heads of action it is difficult to say for sure the extent to which they will apply in the instance of a false review. However, over and above the sanctions and controls listed above, the threat of bad publicity and reputation loss should on its own serve as a useful deterrent to companies who encourage or at least turn a blind eye to their employees who astroturf.